Strong upward momentum appears set to carry a year-end rally in global equity markets, despite the prospect of further increases in United States interest rates, dollar weakness and rising inflation.
Powered by an incumbent-president victory and easing oil prices, Wall Street in the past four weeks appears to be shelving much of the gloom that weighed on equities in the first three quarters, according to Timothy Hayes, global equity strategist for Florida-based Ned Davis Research Group. 'Technically it is in favourable shape right now,' he says. 'The market is focusing on the fact there is still enough positive momentum economically.'
Citing data going back more than 100 years, he says when an incumbent Republican president wins the White House, the stock market historically outperforms into the new year. A win by a Democratic incumbent tends to be neutral for the market.
'The markets don't like uncertainty,' he says. 'When the incumbent wins, you pretty much know the same policies are going to be intact.'
Friday's declines in New York, which saw major indices fall more than 1 per cent after Alan Greenspan expressed concern on the deteriorating US current account deficit, were accompanied by confirmation of long-established trends in the currency markets. The dollar fell to a 41/2-year low against the yen, while gold prices closed the week at US$447.05 an ounce, extending its 16-year high.
'Nothing has changed dramatically,' Mr Hayes says.
